The variation of the Consumer Price Index (CPI) in the first quarter of 2016 reached 3.55% and in the last 12 months amounted to 7.98%, the highest figure in the last decade, alerting the national economy. Meanwhile, inflation expectations for the end of 2016 stood at 6.9%, while the expectation for the closure of 2017 increased from 4.5% to 4.6%.

According to analysts, adjustment measures such as increasing the Repo rate (repurchasing agreements in which the issuer provides liquidity by buying financial institution deeds) that, since last September stood at 200 basis points, which reached 6.5%, have not been enough to control the accelerated inflation cost increase.

Therefore, they would expect the issuer to extend this rate between 25 and 50 basis points (bps) as the immediate shock action to control the prices index overflow. Since July of 2012, there were no rates higher to 5.25%, so the question arises in whether these rate increases will be enough to reduce the index’ growing trend.

The Bank of the Republic informed about the higher inflation rate and concluded that it has been a result of “transitory shocks”, which will reverse within time and in the period provided to achieve the monetary policy goal; two years for Colombia. Namely, between 2017 and 2018 the situation would be under control again, and the expectancy of the lowering in prices in the second half of 2016, on behalf of an adjustment in the exchange rate and the possible decrease of the impacts of weather events in food prices.

The Bank of the Republic contends that inflationary pressures from factors such as the gradual slowdown of the national economy, the international falling in commodities prices (raw materials), exchange rate appreciation and low inflation in developed economies, will be strengthened by the activation of new mechanisms which contracts for future payments will be expressed in terms of money with a constant purchasing power. Today, it has spread to major items such as rent, health care and education services.

Uprising expectations have increased amidst a landscape of severe drought and the rising of the dollar. This exchange situation, that has kept the dollar over the 2,900 pesos level, has led to the fall, among others, of luxury goods consumption, whose demand has decreased in greater proportion than the income falling.

Other economic indicators

Dollar

In July, the agents’ expectations about the exchange rate behaviour suggest that the dollar would be located among the $2,900 to $3,000 for the next three months.

By the 2016 closing, analysts expect the exchange rate to remain at its current levels.

Stock market

56.9% of analysts expect Colcap (main stock market index of the BVC) increases over the next three months. ISA action was ranked as the most attractive among those that compose Colcap, followed by Argos Group, Cemex, Celsia, and Éxito.

Colombian Stock Exchange (BVC) and MILA

Since the 30th of May in 2011, the Colombian Stock Exchange is part of the Latin American Integrated Market, MILA, which is the result of the agreement signed between the Santiago Stock Exchange, the Colombian Stock Exchange and the Lima Stock Exchange as well as the Deceval, DCV and Cavali, all along in order to create a regional market for trading equities in the three countries.

Brazilians are left with almost 10% of the Colombian Stock Exchange

BM & FBovespa became the new shareholder of the Colombia Stock Exchange just after buying $39,800 million (13.22 million dollars) in shares of the company, informed by Bovespa in Sao Paulo. The operation increased significantly the trading volume and the price lifted in more than 8% on Wednesday, July 6th to $19,8.

The BVC is the fourth Stock Exchange with the more active trading volume in Latin America and the sixth in the world for its trading volume in negotiations with the public debt. To consider only the volume traded in shares, the BVC remain in the fourth place just after BM & FBovespa (Brazil), Santiago Stock Exchange (Chile) and the Mexican Stock Exchange (México).